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Traditional and Electronic Payment Methods

Traditional and Electronic Payment Methods. Chapter 3. Money and Banking. Money serves as a measure of value, a medium of exchange Money exists in a number of forms Cash Coin, paper money Near Cash Checks, drafts, money orders, credit cards. Check Processing.

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Traditional and Electronic Payment Methods

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  1. Traditional and Electronic Payment Methods Chapter 3

  2. Money and Banking • Money serves as a measure of value, a medium of exchange • Money exists in a number of forms • Cash • Coin, paper money • Near Cash • Checks, drafts, money orders, credit cards

  3. Check Processing

  4. Encryption/Decryption of Transactions

  5. Check • A written order on a bank or other financial institution to pay money belonging to the signer to the presenter of the check • The most popular offline settlement method • Good for e-commerce? • What is a cashier’s check? • Checks have been around how long?

  6. Money Order • An order for the payment of a specified amount of money • Usually issued by the post office or a bank or other financial institution • Popular with people who do not have bank accounts or where checks are not acceptable • Good for e-commerce?

  7. Credit Card • Used to settle charges for goods or services • Card holders pay their bills monthly and pay interest on unpaid account balances • Issued by banks or financial institutions • Visa and MasterCard are clearinghouses for member institutions • Other credit card types?

  8. Charge Cards • Similar to credit cards • Customer pays bill in full each month • AMEX card is a popular example • Diners Club another example

  9. Debit Cards • Similar to credit card in operation from merchant’s perspective • Similar to a check from customer’s perspective • Pros & Cons

  10. Payment Processing • A merchant must have • A merchant account • Payment processing software • Procedures to protect customers and guard against fraud

  11. Merchant Account • An account with a financial institution to accept charges • Must apply for account and be accepted • Supply bank with financial information (p. 73) about anticipated transaction volume and type of business • The bank charges for this service

  12. Merchant Account • Chargebacks result from customer refusal to pay a charge for a number of reasons, including returned goods, billing errors, and fraudulent charges. • Chargebacks can be expensive and the bank may charge higher fees for higher risk enterprises and “situations.”

  13. High Risk Factors • Customer not present (telephone and Internet sales) • High risk products or services (gambling, “politically incorrect,” or non-traditional products)

  14. Payment Processing Software • Software to facilitate authorization of customer charges to credit or debit charge account. • Alternative is to outsource to 3rd party for a fee. • Authorize.Net • CyberCash • ICVerify

  15. Verification Software

  16. Security for Charge Settlement • Security must be provided for customer transaction. • Secure Sockets Layer (SSL) technology provides encrypted transmission of data between customer and a secure server. • Encryption terms p. 76

  17. Authentication • SSL requires a digital certificate that verifies a sender’s identity. • An e-business obtains its certificate from a certificate authority such as VeriSign. • Secure Electronic Transactions (SET) – p. 77 • E-wallet – p. 78

  18. A Digital Certificate

  19. Fraud • Credit card fraud is a major problem • Online CC fraud 12x more than traditional • As high as 1.15% of online transactions were found to be fraudulent vs. .06-.09% traditional • Charge backs • Online – 64% ; Traditional – 44% • Security: how much do you want? • Too much will cost sales but reduce fraud to nearly nothing, and too little will result in higher losses.

  20. Security Measures – p. 79 • Verify validity of charge. • Ship via currier and require receipt signature. • Require and verify the complete address and telephone number of customer. • Reject orders from anonymous email addresses. • Disposable credit card numbers

  21. Electronic Payment Forms • Various alternative payment forms include: • Electronic Cash • Electronic checks • Smart cards • Person-to-person payment systems • 2001 – CC 95% of online purchases • Projected 2003 – CC 75-81% - reality?

  22. Electronic Cash • Variety of products available • Allow for online purchases without a credit account • Allow customer to avoid sharing account data while guaranteeing payment to vendor • Examples • Beenz • Cybergold • Flooz

  23. Smart Cards • A store value card • Popular in Europe (Mondex); not yet common in North America • Needs special equipment to work with a PC

  24. Electronic Checks • An electronic version of a paper check • Essentially a form of Electronic Funds Transfer (EFT) • $.50 vs. $.75-$3.00 processing costs • Scanned via MICR – account #, routing #, & check serial # • www.paybycheck.com

  25. Person to Person Systems • A way to send money, a funds transfer • www.paypal.com

  26. Person to Person Payment

  27. Person to Person (P2P) System

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